Why advertising will fail on the Internet

The titans of traditional media are desperately trying to transfer their business models into the digital realm.  Since subscriptions have never produced sufficient income, all these models depend on advertising revenue.

Unfortunately for them, the Internet rejects advertising.

Mass marketing flourished in print, on TV and on the radio, but only because those media all share a crucial characteristic: A passive audience.

I don’t mean completely passive.  Some crude exchange mechanisms do exist.  For instance, I could call in to a radio show or write a letter to the newspaper, and I could also buy a printing press and distribute my own content.  But those mechanisms have crippling limitations on audience participation, so the conversation overwhelmingly occurs in one direction — from anchor to viewer, from expert to layman, from owner to consumer.

This set-up benefits the advertiser.  His message reaches a captive audience member, who, before the invention of TiVo, would need serious persistence to avoid commercials.  This was especially true on the airwaves, where stations synchronized commercial breaks to force us to endure blither blather.

Audience passivity also benefited advertisers in terms of suppressing criticism.  Because of barriers to information distribution, both financial and ideological, consumer groups had much less reach than corporate marketers.

The game has changed.

With the Internet, I am active.  I decide what content I want, and then I access it via the shortest possible route (unless I feel like browsing), and I do this whenever I want.  If ads block my route, I am annoyed.  If they pop up at me, I close them down.   If they arrive in e-mails, I filter them out.  If they play before my video, I snarl at them.

When ads appear alongside my desired content, I have virtually no reason to pay attention to them.  If I want a product, say a digital camera, I read a review site and consider the extensive, consumer-generated information.  We have a newfound voice.  We can now publish instantly and freely.

In an article on TechCrunch, Professor Eric Clemons outlines four premises that explain why he thinks, as he puts it, “the internet is not replacing advertising but shattering it.”  Clemons, who teaches at the Wharton School of the University of Pennsylvania, says, in short:

  1. We don’t trust ads.
  2. We don’t want ads.
  3. We don’t need ads.
  4. Ad space is plentiful and therefore not profitable.

I reference Clemons, as I referenced Taylor in an earlier piece, because his thoughts influenced my own.  But, as with Taylor, I have disagreements.

Premises #1 and #2 are true on the Internet, but they are also true generally.  When we watch TV, we want to see the program, not the commercials.  We don’t trust commercials either.  All things being equal, I might buy a cereal I’ve heard of in an ad instead of one I haven’t heard of, but that’s not because I trust the ad.  Rather, it’s because I’m familiar with the product, and “familiarity induces preference.”

Premise #3 identifies the critical change.  We’ve never trusted or wanted ads, but now we don’t need them either.  On review sites, I can expose myself to more products and learn more trustworthy information about them.

Premise #4 would fail without premise #3.  Ad space is also plentiful in the physical world, but only some of it can reach mass audiences.  Internet traffic is finite; it concentrates in certain hubs.  If ads were still needed by consumers, marketers could potentially target them at these hubs.

So the Internet will shatter advertising, and I propose that this is reason for celebration.  Note that the overriding purpose of an advertisement is to persuade me to buy or support something.  It presents information in the context of persuasion, and so it cannot be expected to be objective and honest.

Insofar as the Internet provides a robust oversight mechanism (e.g. consumer reviews), it produces a more meritocratic market.  Products and services thrive, not because mass advertising has persuaded us or familiarized us, but rather because we actually trust and desire them.

15 Comments

  1. Ted

    we have to be careful that the advertising $ doesn’t begin to infiltrate new areas, such as review sites (maybe it already has)

  2. Chris

    Ted,
    There were questions surrounding GameSpot’s editorial policy: http://en.wikipedia.org/wiki/GameSpot#Gerstmann_dismissal

  3. Ted

    wow, that’s scary… and similarly I’ve always wondered if movie studios paid big critics like Ebert & Roeper.

    if this were to happen and trusted reviewers/critics become corrupt… where do we turn? I guess you have to start trusting capable, smaller, “fringe” critics that just aren’t big enough (yet) for advertisers to care about. might be hard to find though.

  4. Ted

    also does this mean Greg Kasavin is a sellout?

  5. Chris

    Ted,
    When it comes to making purchases, I rarely rely on one review anyways. Usually a couple of pro reviews and then a lot of user reviews. On Newegg, for example, I won’t buy something unless it has 10+ reviews. I’m sure some of these companies plant user reviews too, but my hope is that they can’t plant all of them…

  6. Ted

    yeah there’s another thing. who knows which of those reviews you can trust? I do the same thing for restaurants too. but a savvy businessman with some time to invest can easily create reviews on his own.

    there’s also reviews for nearly everything now, dentists, doctors, gyms… anything you could find in the yellow pages. I know one particular gym that wrote 20 great reviews on citisearch and it’s only helped his business.

    someone should start some sort of reviewer verification system — hey now there’s your million dollar idea.

  7. Clint

    Ted,

    “who knows which of those reviews you can trust?”

    I think this problem can be solved by a Digg-style rating system, which is already in place on many sites (Amazon, for instance).

  8. Interesting post. I agree that in a world where consumers can choose to avoid ads, the existing ad model is broken. But rather than celebrate a potential downfall of advertising, let’s take a step back and see what we are really complaining about.

    Most economies break when the money dries up, but that’s not the case here. Marketers spend $300 billion per year to get their message in front of US Consumers. They love us! They think we’re incredibly valuable. The only reason we dislike and avoid them is because the money spent buying our time and attention doesn’t go to us. Redirect the flow of ad revenue to the owners of time and attention, and the problems Professor Clemons highlights go away.

    More on my blog…www.OurSeatAtTheTable.com

  9. Clint

    David,

    “Redirect the flow of ad revenue to the owners of time and attention, and the problems Professor Clemons highlights go away.”

    This is an interesting idea. How would you imagine it functioning?

  10. Jordan

    I think David is trying to show you the ‘new advertising’ – commenting on a blog is a facet of the new way of promoting.

    My reply is over at my blog:

    http://jordanmendenhall.com/2009/06/29/advertisings-failure-on-the-internet-a-reply/

    Ted – Ebert doesn’t take any money from the studios.

    http://blogs.suntimes.com/ebert/2008/10/eberts_little_rule_book.html

  11. Ted

    “Redirect the flow of ad revenue to the owners of time and attention, and the problems Professor Clemons highlights go away.”

    yes I’m not quite sure what you mean here either.
    are you saying pay the people who are watching tv/commercials, who you are advertisting to, who you want to ultimately buy your product?

    I don’t see how that’s any different than giving a coupon or putting something on sale… which just decreases your profitability…

  12. Chris

    Gonna take a stab here, and say that David means a more equitable distribution of wealth.

  13. My point is that advertising is not broken and advertising is not destined to fail. The advertising supported media model is what’s broken. Take media out of the equation and you’ve got marketers wanting to spend $300 billion annually for something we typically give away for free. That sounds like a big opportunity, not a broken economy.

    Advertising does not function under the laws of economics. The laws of supply and demand. Advertisers control $300 billion worth of demand for consumer time and attention. Who owns the supply? Who owns your eyes and ears? I believe you do. Yet the supply of advertising is controlled and monetized by companies that can efficiently aggregate the possessions of consumers. It the only buy/sell relationship on the planet where the sellers don’t actually own what they are selling.

    I believe advertisers are paying for, and therefore should receive, the consumer loyalty that currently flows to the media companies. And consumers are supplying, and therefore should be compensated for, the time, attention, personal information, and viral marketing that advertisers are buying from the companies that aggregate us.

    Clint, I’m actually in the latter phases of a new venture that aims to solve this… a simple, frictionless model that can facilitate this disintermediation.

  14. jonas

    Advertising won’t fail on the Internet, it will evolve. It already is. Sponsored content, contests, even full websites.

    Dr. Clemons uses 4 assumptions to build his theory. Each one can be countered:

    1. We don’t trust ads.
    Is this really true? Sure there are deceptive ads, but there are deceptive stockbrokers too. I’d argue that ads seen associated content are more trusted that others. Further, Ads for products consumers already have a positive image of tend to reinforce these positive feelings.

    2. We don’t want ads.
    Most people when asked if they would rather pay for content vs. seeing ads, choose the ads. Personally, I don’t mind some ads and appreciate learning about a product I hadn’t heard about and might enjoy. Once again not all ads are deceptive.

    3. We don’t need ads.
    Really? So all buying decisions will be made by word of mouth (which is a form of marketing – ever heard of WOMMA?) on sites that you subscribe to or just talking with friends. Sounds like a ton of research I don’t want to do for every buying decision. I appreciate that Safeway send me a circular with all the weekly specials. Then, I don’t have to go ask all my friends what is on sale at Safeway.

    4. Ad space is plentiful and therefore not profitable.

    True ad space is plentiful. Quality, branded content will still attract ad dollars. Marketers still value this and it drives sales for lots of companies.

    Online advertising is not going away it is evolving, just as any industry less than 15 years old has done in the past. I do agree that the Internet is changing advertising and marketing, and marketers are changing as well. As long as the Internet, mobile, twitter or whatever are places where marketers can reach the consumers

    Dr. Clemons, you might want to grab lunch with some of the marketing profs, I’ve heard Wharton has some good one’s.

  15. Chris

    Jonas,
    Great comment. It reminds me that despite all the diverse sources of content on the internet, a few big name players are still dominant. CNN, the NY Times, Wikipedia, Google, and a few others. These sites generate massive amounts of traffic despite fierce competition, and there is no reason why advertising on them will go away.